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Oil Climbs Over $100 a Barrel Because of Unrest in Libya

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On Wednesday, crude oil prices jumped to more than $100 a barrel for the first time since September, 2008. Analysts believe that the instability and fighting near key oil ports in Libya is to blame and worry that the fighting might go on longer than previously thought, which could inspire unrest in surrounding areas.

While there is enough oil in storage worldwide to meet short term needs, a prolonged Libyan conflict could drive oil prices even higher. Helima L. Croft, an oil and Africa analyst at Barclay's Capital, says, "The conventional wisdom a week ago was that Gaddafi would go in a week. But now, Gaddafi is digging in and is holed up in Tripoli with African mercenaries. ... So there could be a significant outage for a significant period of time."

Officials are also concerned that the unrest will spread to surrounding nations who also export oil. According to the Washington Post, "In Algeria, the government has taken steps to protect its oil and gas infrastructure. On Wednesday, protesters blocked a road in Oman, two protesters were shot and killed in Yemen, and websites in Saudi Arabia called for national 'day of rage' protests this month. In April, oil-rich Nigeria will hold presidential elections, often an occasion for sectarian and regional strife."

At best, the Libyan crisis has caused limbo in the international oil market—at worst, Croft says that we could see "conflict oil" similar to the "conflict diamonds" that emerged from war-torn African countries more than a decade ago.

According to Croft, "Even when Gaddafi goes, you have a country that doesn't have a parliament, doesn't have a constitution, has no real government agencies. You're going to have a huge power vacuum when he goes. Libya is not going to look like Egypt. Egypt looks so orderly by comparison."

The biggest concern in the U.S. is that rising gas prices could hinder the country's economic recovery. Gasoline prices are going up—quickly. This week, gas reached $3.39 a gallon, up 20 cents from the past week and 30 cents in the past month. I recently paid $4.09 in San Francisco and in Woodland Hills, a suburb of Los Angeles, CA, gasoline is nearing $5 a gallon. When gasoline prices go above $4 a gallon, there is an immediate and negative effect on the nation's economy. People stop traveling; they stop shopping. Additionally, when the economy is no longer able to absorb higher energy costs, prices of other goods and services also rise.

 

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